KEY POINTS:
Personal tax cuts have been ruled out of Thursday's Budget, but Finance Minister Michael Cullen is set to announce a sort of tax incentive for saving instead. Political reporter Paula Oliver examines some of the ways it could be done:
Make a person's own contribution to KiwiSaver tax free.
Perhaps the cleanest and easiest option. It would involve the money an employee puts into KiwiSaver being deducted before tax is paid. For example, if a person earned $100,000 a year and was saving 4 per cent, $4000 would go straight into a savings account and the person would be taxed on the remaining $96,000. For someone earning $50,000 and saving 4 per cent, $2000 would go straight to saving and $48,000 be taxed.
The gain would not be directly felt in the hand by savers until either they turned 65 or fitted the criteria to be able to withdraw their money from KiwiSaver - something that might invite a backlash.
Among the questions needing to be answered would be what happens with non-KiwiSaver schemes, and the mortgage diversion scheme within KiwiSaver that offers potential for people to divert money to pay off their homes.
Allow some sort of tax rebate or tax deductibility on KiwiSaver contributions.
A more unattractive option to implement, but one which would give savers more cash in the hand well before they turn 65.
The option could see people paying tax on their own KiwiSaver contributions throughout a year, but getting it (or at least some of it) back annually through a refund.
Tax experts suspect the option may not be welcomed by the Inland Revenue Department, because of the demands it would place on staff to deal with taxpayers individually.
Cut corporate tax more than the expected 3 per cent, and require employers to contribute to an employee's saving account.
This option means individuals would not be required to save on their own, but would have it done for them. For low to modest income earners this might be a positive, although employers could offset the contributions by offering lower yearly wage rises.
A move which is virtually compulsory saving, and indications so far are that the Government may not be prepared to go that far in this Budget.
Have the Government make a weekly or lump sum contribution into a person's KiwiSaver account.
A potentially costly, but major attraction to get people saving.
This option could see the Government do something like put $10 a week or $20 a week into a KiwiSaver account, making it more attractive for people to save. Alternatively, it could make a lump sum contribution on a less regular basis.
Winston Peters has indicated that smart workers will be the ones who benefit from whatever the Government has up its sleeve, and this would fit that bill.
However, low and middle income people who would struggle to save the minimum 4 per cent of their pay as required in KiwiSaver might not get any benefit at all.
